Testing Resistance Within Consolidation
Crude oil consolidated on Tuesday, trading inside Monday’s range and testing resistance near the 10-day moving average for the second day in a row. The relatively narrow range day followed a sharp daily bullish reversal on Monday that reached a four-day high of $97.21 and tested resistance near the lower daily high of $97.85. Resistance was seen near the falling 10-day moving average on Monday and again on Tuesday, with the day’s high of $96.30 at the time of writing.
Triangle Pattern Sets the Stage
Overall, crude oil has been consolidating within a symmetrical triangle pattern, with a new higher swing low established last week at $88.90. That low confirmed the lower boundary of the pattern, while Monday’s bullish reversal provided additional confirmation of triangle support. As a result, the upper boundary of the pattern now represents a potential upside target.
A recovery of the $97.85 high would show strength and confirm a reclaim of the 10-day moving average. However, an advance within a consolidation structure typically reflects a lower-confidence environment. Price moves may be less likely to generate sustained follow-through than they would in a trending market. Further, as prices move closer to the apex of the triangle, estimated to occur before July 20, volatility trends to contract, increasing the likelihood of a breakout in either direction.
Key Resistance Zone Comes Into Focus
The new higher swing low and subsequent bullish reversal suggest that a test of resistance near the top upper pattern boundary may occur before the risk of a decline below $88.90 increases. In addition, the confluence zone formed by the 20-day and 50-day moving averages near $99.34 presents a key short-term resistance area that must be reclaimed before there is a reasonable chance of a larger advance.
Rising Trend Support Strengthens the Setup
Key dynamic trend support is marked by the rising 100-day moving average at $85.45. The indicator appears to be moving toward a convergence with the lower triangle boundary, which would further validate the lower triangle boundary as a potential support zone. The reaction of price once the 100-day average rises above the lower boundary line will be interesting to monitor. Such a development would strengthen the bullish implications of the ongoing consolidation and support the possibility that the next decisive move from the triangle could be to the upside.